price

Subscription companies face many of the same challenges that more conventional companies face but the nature of these businesses puts an entirely different spin on the challenges.

All companies have to acquire new customers, make products and price them attractively without leaving money on the table. Also, once a product is purchased, a company needs to get the cash in house as quickly as possible. If you think of this as the order to cash process, you’d be pretty close depending on how far up the sales trail your definition of acquisition goes. But while these ideas seem familiar there are major differences between how they are implemented and supported conventionally and in a subscription environment.

Acquiring customers

Order to cash in a conventional company is relatively simple. A conventional company makes products, its sales team sells them and operations produces an invoice that finance tracks all the way to collection. A subscription company is just like a conventional company in that respect but it is different because the subscription company needs to reacquire its subscribers all the time. For a subscription company the sale is never complete because there’s always next week, next month, next year — you get the idea.

Subscription companies are always in acquisition mode, which means much more than always be selling or always be closing. Subscribers want a bit of rest from the acquisition process and they need to get on with life with the new solution they bought. So maintaining their interest moves down stream to things like being successful using a product and resolving issues — whether support or billing — efficiently.

So a subscription vendor, even in acquisition mode, needs to keep a weather eye for forming productive bonds with customers. Customers that bond well are more likely to tell others about their experience thus becoming an unpaid sales team for the vendor. Customers that don’t bond don’t advocate and may be more likely to churn, a subject for another discussion.

Pricing

The difference between conventional companies pricing products and subscription companies couldn’t be more different. A conventional company has to sweat all the details — what’s included, how much does it cost, what are the terms and conditions, on and on. They have to because they rely on research, surveys, focus groups and more and even with all that they might not get it right. If they fail it’s a big investment wasted.

On the other hand, a subscription company can harness the power of the social crowd to accomplish the same thing and it can do all this proactively. By the time a conventional company gets a product to market, its information is weeks or even months old but look what happens with a subscription vendor.

Say the vendor analyzes aggregate customer purchases and discovers that customers that buy one service are likely to buy another. Why not offer a package containing both? The same analysis can also tell what the customers pay for the combination and from there the vendor might wish to make a price adjustment to promote the combination. With this approach the probability of success is much higher and if, for some reason, the idea doesn’t work so what? The cost of the effort is practically zero and you can always try something else rapidly. Try that in a conventional company. If you are a subscription vendor already doing this, give yourself a touchdown, you deserve it.

Billing

They have a word for billing in the subscription world — heartburn. Nothing generates more of it that trying to get the bills right in a highly fluid subscription business where customers can change their configurations as frequently as they need to. The heartburn comes from trying to process bills with a billing system that’s designed to support a conventional one and done invoicing and payments process because that’s not how subscriptions work.

Just as acquisition is a never-ending process, so is billing. As a matter of fact, it’s also ever changing. The secret to successful subscription billing is, like most things in business, having a system that supports the process you have and not the process some vendor wishes you did.

The other similarity between billing and acquisition is that it is another spot where customers subconsciously evaluate a vendor and make a subliminal decision about bonding with the vendor. Was the process easy, precise, and accurate, or did I spend half an hour on the phone again? These are the things that add up to customer bonding.

Final thoughts

This is only the order to cash process; there are lots of other processes in which subscription companies engage with customers differently than their conventional peers. More than ever, these processes are governed by analysis of the data crumbs that become part of the customer record. It’s imperative that subscription vendors fully understand the differences between their chosen path and convention. Doing so will enable them to choose the right systems they need to support business on this new frontier.

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Beagle Research Group, LLC is a CRM analyst firm founded in 2004. We perform market research for vendors and advise end users in CRM selection, deployment and use. We also publish a steady stream of analysis on many of the industry’s most popular topics as well as emerging trends. For example, one of our core pursuits is researching emerging companies to understand current innovation trends. This research informs the advice we give our clients and readers.